Discussion Papers 2018

CIRJE-F-1091

"Product Proliferation and First Mover Advantage in a Multiproduct Duopoly"

Author Name

Cheng, Yi-Ling and Takatoshi Tabuchi

Date

August 2018

Full Paper

PDF File

Remarks

Forthcoming in International Journal of Economic Theory.

Abstract

This study aims to understand product proliferation and …first mover advantage in the case of multiproduct …firms that engage in Stackelberg competition on the number of varieties and prices. We show that when fi…rms sequentially choose the number of varieties and then simultaneously decide prices, the leader produces more varieties and enjoys …first mover advantage. By contrast, when the leader sets both the number of varieties and prices before the follower does, the follower tends to produce more varieties and enjoy second mover advantage in the case of a large demand and a small cost of expanding product lines. This result sharply contrasts with those of studies on the sequential entry of single-product …firms. We also show that the market provides too few varieties relative to the social optimum.